SMSF members need to be aware of when they can acquire private shares from a related party, with a technical specialist noting the nature of that association is only one criterion that needs to be considered when making that purchase.
Institute of Financial Professionals Australia (IFPA) senior technical services specialist Stuart Sheary said it was possible for an SMSF to acquire unlisted shares from a related party or company, but the in-house asset rules must also be applied in this and most other scenarios.
“If it’s a related company and you personally own shares which you control and it’s not listed, your SMSF can acquire those shares, however, it is subject to the 5 per cent in-house asset rule and the value of those shares can’t exceed 5 per cent of the value of the fund,” Sheary said during an IFPA member briefing today.
“Interestingly, if you hold shares [of an unrelated company] as an [SMSF] member, you may not transfer [those] shares.
“If I am one of many shareholders and have no control over that company, it’s an unrelated company and I can’t transfer those shares because the SMSF cannot acquire an asset from a related party unless it’s an exception to the rule, and unrelated companies are not an exception.”
He said the rules were similar if acquiring private shares in a related company from an unrelated party, but differed where both the party and company were unrelated.
“My best friend has some private shares. Can my SMSF acquire those shares?” he said.
In this scenario, if those shares are in a company that is related to me, my SMSF can still acquire those shares from my friend who is an unrelated party, but again it’s going to be subject to the 5 per cent in-house asset rule.
“If those shares were unrelated to me, that is, my SMSF is purchasing them from an unrelated party and the company is also unrelated to me and the SMSF, then there’s no limit on how much my SMSF can invest in those unrelated shares.
“Keep in mind, of course, the acquisition has to be subject to the investment strategy, which is an important caveat to add there.”
